If you were flying on Alaska Airlines this weekend, you had a rough go of it. The airline’s computer systems crashed and that meant plenty of delays and cancellations. Unlike Southwest in its meltdown earlier this month, however, Alaska handled this brilliantly from a communication standpoint.

You can see more on what Southwest did wrong on BNET, where I wrote about Southwest’s Rapid Rewards transition, airport systems failures, and the meltdown that followed. (This, by the way, is my very last week writing for BNET after 3 years on the job.) Southwest said it didn’t want to proactively communicate more than it did because it didn’t want to overburden its website which was already having problems.

Alaska may not have had website problems to muddy the waters, but its decision to go forward with very proactive communication is something that I imagine would have been the case regardless. The airline was doing a backup power supply upgrade when a transformer “blew” and the systems went down. This happened about 3am on Saturday. There were significant delays for flights at that point, and cancellations soon start piling on – about 150 or so in total. At 802a, Alaska sent its first tweet on the situation.

If I have one complaint, I would have liked to have seen a tweet show up earlier. But after that first tweet, the airline’s Twitter account went into overdrive with 11 separate tweets giving status updates, links to more information, and of course apologies. (This doesn’t include tweets that were sent in response to concerns of others.) Certainly Twitter wasn’t the only place where the airline was active. There were also 7 separate Facebook page updates dealing with the problems and four press releases.

Most importantly, I think, there was a big travel advisory placed in orange at the top of the page with a link to more information about the outage. At the same time, Alaska decided to loosen its change policy so that anyone traveling Saturday through today could make a change without a change fee. It was noted that hold times were long on the phones, but customers could also make those changes on the website.

By noon, the systems were at least partially working but delays persisted, of course. By yesterday, nearly everything was back to normal. And that’s when Alaska got even better. Alaska President Brad Tilden and regional subsidiary Horizon Air President Glenn Johnson put a 2m29s video on YouTube apologizing for everything and giving detailed information on what happened along with how people could still get help. It put a very welcome human face on the problem.

As noted in the video, the airline is encouraging anyone who had problems to contact the airline’s customer care group for what I assume is further compensation. At the very least, a personal apology will be issued. This was reinforced on the Facebook page and with a tweet:

For those customers that were impacted by yesterday’s flt disruption, pls contact us so we may follow-up individually: http://bit.ly/hBbGpr

In the end, there were plenty of angry people, without question. People were delayed and canceled and there will undoubtedly be some horror stories that circulate around this, but sh*t happens. It’s all about how the airline deals with its customers when it does happen, and Alaska did a fantastic job in this case.

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And we’re back. Today, I pick up my interview with Horizon Air President Glenn Johnson by talking about future growth and Alaska’s recent decision to outsource some flying to SkyWest. [Read Part 1 of the interview]

Cranky: Looking at Horizon now compared to a couple years ago, you look a lot more like any other regional carrier other than the fact that you’re owned by Alaska Air Group. Is this foreshadowing a possibility of doing flying for other airlines?

Glenn: Yeah, I wouldn’t rule that out. Right now our focus is on getting our transition to the all-Q400 fleet and getting our profitability to the level of Alaska’s. You know, Alaska has just achieved its 10 percent goal for return on invested capital, and that’s the goal for Horizon as well. We’re halfway there. When we get to that level, I think we would be competitive in terms of being able to go out and look for other business if that was in the interest of [Alaska] Air Group to have us do that.

Cranky: And you don’t have many competitors flying Q400s.

Glenn: And I think the Q400 is a great airplane in the right markets. Obviously it doesn’t compete on real long haul markets. With the number of seats it has and the incredible fuel efficiency, it’s a fabulous competitive tool for us.

Cranky: Looking at the Alaska network, there’s really limited growth opportunity for that airplane. You’ve talked about going into the State of Alaska, but other than that, do you see real growth opportunity with Alaska’s network?

Glenn: We’ve actually just recently introduced service from San Jose to Los Angeles. It’s an interesting one for us to watch because it’s an intra-California marketplace … obviously a competitive marketplace but also pretty well-suited from my perspective for the Q400 so I think there’s lots of opportunities once we get the cost structure right at the company.

Cranky: That market is interesting as well because you’re going up against one of your codeshare partners too. I was waiting to see if we’d see some American regional jets disappear in favor of the Q400 at some point.

[silence]

Cranky: Probably not gonna comment on that, I guess. [laughs]

Glenn: [laughs] Nope. I’ll leave that one alone.

Cranky: What about the Alaska flying? Are you talking about that at all yet?

Glenn: We haven’t announced anything other than what we’ve said on the [earnings] call which is that we are actively looking to see if the Q400 has a place doing State of Alaska flying from a technical standpoint and from a community standpoint as well. If you think about the State of Alaska flying, and my last job was as the CFO for [Alaska] Air Group so I have some insight into this, we need to figure out the right mix of flying where we can still handle the right mix of cargo and passengers. At the end of the day, the Q400 on the right stage length has better economics than a 737. That can allow us to provide service more efficiently and produce lower fares. That’s what customers want these days.

Cranky: Are there are any tech issues with the Q400 up there?

Glenn: It kind of depends on which cities and that’s why we’re looking across the whole range. Alaska pioneered the [Head-up Guidance] system and we have that, so as far as low visibility flying we’re fine. And Alaska pioneered [Required Navigation Performance] RNP flying, particularly for the Juneau Airport which is quite tricky. Horizon has work to do to get to the same level of RNP certification at each airport. That’s what I mean when I talk about technical issues.

Cranky: Switching gears, as a Long Beach resident I was wondering how you would continue to serve Long Beach when the CRJ-700s are retired. I see there’s an agreement with SkyWest to take some of your CRJ-700s. I imagine that’s making some people nervous at Horizon.

Glenn: We haven’t talked about specific city pairs but all along as we’ve talked about simplifying down to a single fleet type with Q400 flying, there are some markets that we are serving on behalf of Alaska on the CRJ that are not great candidates for a Q400. You could probably technically do Pacific Northwest to Southern California routes with a Q400 but it adds 20 to 25 minutes time and so that’s probably not ideal. Alaska is still working on specifics on which markets. It’s just 5 airplanes.

And you’re right, the Horizon employees are concerned about the impact of that and my reminder to the employee group is that we’re very competitive with the Q400. We’ll become even more competitive when we get through the rest of the business transformation process – getting to a single fleet type, getting the rest of the reliability and cost issues with the Q400 taken care of. At the end of the day I think the Q400 becomes a competitive advantage for us in the right size market against anybody else.

Cranky: I assume there is some anxiety around which routes will be taken over, but I’m sure they’re nervous saying, “can this grow any further? Will it take routes away from us?”

Glenn: The best way to not have that happen is for us to have really competitive costs so we can produce seats for Alaska at the best costs possible within the family.

Cranky: Is there any discussion about Alaska Air Group spinning off Horizon into a separate company? Sell it to a larger regional?

Glenn: We’ve said that no, we acquired Horizon (I say “we” because I was at [Alaska] Air Group) with the intent of having that feed owned within the Air Group. Horizon has an important place within [Alaska] Air Group. The challenge for Horizon until recently has been they were producing all that feed but not generating adequate return on the $750m of capital on the Horizon side of the business – about 25% of total capital of [Alaska] Air Group. The board was rightly concerned; we certainly couldn’t invest more capital in the Horizon side of the business with no return on it, and even with the existing capital, we had to get it to generate an adequate return.

For the year 2009, we generated 5% return on invested capital at Horizon and 11.2% for Alaska so Horizon is moving along. We were in the 1 to 2% prior to that in terms of return on invested capital on the Horizon side. We’re moving pretty swiftly ahead. We just have to keep focus on that and we can get to 10% return and then we can look at additional investments for Horizon. But absolutely the stated intent is to keep Horizon within the Air Group and have it be an important feed provider for Alaska.

For those who hadn’t heard, Alaska Air Group’s wholly-owned regional subsidiary Horizon Air will be losing its brand some 25 years after Alaska first bought the airline. Instead, Horizon flights will all be marketed under the Alaska name. I spoke with Horizon’s president and Alaska Air Group veteran Glenn Johnson about this big change. Tomorrow, I’ll have the second part of our discussion where he talks about growth opportunities and outsourcing.

Cranky: A lot of changes at Horizon this week, several of which have been in the works for quite some time. To start, why retire the brand now?

Glenn: Sure, you know Horizon’s just about to celebrate its 30th anniversary, so the name and the brand has been built over all those years but we made the decision to go to 100 percent capacity purchase agreement (CPA) flying [Ed note: that's where Alaska buys capacity from Horizon and handles pricing and marketing] effective January 1. While that doesn’t necessarily mean you have to change the external branding, we thought that was a good opportunity to look at it. Certainly the Alaska brand … I don’t know if you know my background; I’ve been at [Alaska] Air Group for 28 years back and forth between Alaska and Horizon so I think I recognize the value of both brands … but certainly Alaska is a much better-known brand.

I think what we came up is kind of unique in the industry. We didn’t go with Alaska Express or Alaska Connection but the Alaska name and the Eskimo on the airplane with the Horizon name still there. I think that captures the value of both of the brands. And as we think about taking Horizon up to the State of Alaska, certainly there’s no better brand to have on the side of the airplane than the name of the state. It all seemed to come together.

Cranky: What were you doing with the brand before this? Obviously it was on the side of the airplane but was there a lot of brand promotion over the last couple years?

Glenn: I would say that we’ve been ratcheting it down over the last few years. When we first acquired Horizon at [Alaska] Air Group back in 1986, we kept the two brands completely separate and over the years we’ve found more and more opportunities to co-brand things. In 2010 about 50 percent of our flying was done on behalf of Alaska as CPA flying and the other half was done on what we’d call brand flying where we did our own advertising and promotion in some of the small communities. So there was some level of effort and cost put into the Horizon-specific brand but I think there’s a more cost effective solution here to go with the Alaska brand and get the benefit of all the advertising that goes into the Alaska brand for both companies.

Cranky: Externally, the only thing that seems to be changing is the paint job, right?

Glenn: Right. There will be some airport signage so where we have a Horizon backwall we’ll change those out to Alaska backwalls. The airports will transition to be just Alaska. We have to still say the flights are operated by Horizon Air like any other CPA carrier.

Cranky: Is anything changing internally? I know there’s already been a huge behind-the-scenes effort to consolidate.

Glenn: It really doesn’t and that’s one of the things we’re talking about with employees this week. They’re anxious about this. Losing their identity, so to speak. But we remain a separate company with a separate operating certificate. We still have all the same employees. Still have our folks in Horizon uniforms in terms of pilots and flight attendants. We’re maintaining the service elements that we think are important to our customers. The free beer and wine onboard, the a la carte service … so all of those elements stay the same. It’s really just getting that visual brand recognition and the brand halo from the customer perspective.

Cranky: I find myself wondering how many people even know the Horizon brand outside of the Pacific Northwest.

Glenn: I would say where we have a fair amount of name recognition is in Idaho, Montana, Eastern Washington, and Oregon. Those are traditional Horizon locations, the small cities, where Alaska hasn’t had a presence. That was what we were trying to capture by keeping Horizon on the side of the airplane. Places like Missoula, Montana see Horizon as their hometown carrier and we still want them to have that same sense of pride and ownership in the airline even though we’ve got a new name on the side of the airplane. By contrast, when we are down in California flying from LA to Loreto or La Paz on behalf of Alaska or go up to the State of Alaska, it makes no sense to me to try to propagate it and promote two brands.

Cranky: So the assumption on your part is that there’s enough brand benefit by consolidating with Alaska to pay for the cost of painting the planes?

Glenn: Yep, and to that extent we’ve said it’ll take 12 months or longer to get everything painted. We have 8 new airplanes coming over the next 6 months so those will all be painted in the new colors, of course, and then we’ll take a period of time to paint the existing airplanes. We’ve held off on painting so there’s a bit of a backlog because we knew this decision was pending. And we have 8 airplanes with special liveries – the university airplanes and the green airplane – that will just be a simple change by painting Alaska with the script instead of Horizon. There’s not a huge amount of incremental cost because it’ll be done largely in the course of business.

Come back tomorrow for more on the recent deal Alaska made to outsource some flying to SkyWest as well as future growth opportunities for Horizon.

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